Is UPS Cheap Enough to Buy?

Earlier this month I wrote about why I really like United Parcel Service (UPS), but the stock never seems to get cheap enough to satisfy my requirements for a purchase. However, all of that seems to be changing as UPS is guiding down for earnings per share going forward. Specifically, UPS is estimating earnings of $0.85/share, down from its prior estimate of about $1.00/share. Its package volume is down, and fuel is up. The shares were hammered 6% on Tuesday.

I will have to run my valuation model on UPS to see where I believe a good entry point might be. However, here are some interesting facts I found by just scratching the surface:

• Its P/E ratio of 15.5x trailing earnings is a 5-year low, and well below the average P/E of each of the last 10 years.
• 2003 is the last year the stock last traded down to these levels ($62.26)
• Its 2.9% yield is, at least, a 10-year high.

UPS has been a solid grower of dividends over the past several years, and it has a phenomenal brand and moat. I see UPS as a business for the ages that will still be around, and more importantly, continue to be essential 50 years from now.

As I mentioned in my previous post, I really like its recent move into logistics and specialized, convenient, services for businesses of all shapes and sizes. It is a little known fact that UPS actually performs tasks such as fixing laptops for Toshiba (TOSBF.PK), and picking and shipping running shoes for Nike (NKE). These service-oriented tasks that surround the shipping experience are all added value, and will only increase in popularity as transportation costs rise, workforce ages, and the global economy becomes increasingly intertwined.

I may get my chance yet to open up a position in this global package delivery and logistics leader. I'm staying tuned. Now only if I had some money lying around...

Comments

[gatekeeper:]

Is there any real benefit for UPS from a U.S. deal with DHL? Or did UPS underbid FedEx to get the DHL business at break even or less? Just wondering.

2008 Jun 25 04:54 PM